KEVIN MARILLEY; SALVATORE PAPETTI; SAVIOR PAPETTI, v ...

NO. 13-17358

In the United States Court of Appeals

for the Ninth Circuit

KEVIN MARILLEY; SALVATORE PAPETTI;

SAVIOR PAPETTI, on behalf of themselves and similarly situated,

Plaintiffs-Appellees,

v.

CHARLTON H. BONHAM, in his official capacity as

Director of the California Department of Fish and Game,

Defendant-Appellant

On Appeal from the United States District Court

for the Northern District of California, Oakland Division

No. 4:11-cv-02418-DMR

The Honorable Donna M. Ryu, Judge

PETITION FOR REHEARING/REHEARING EN BANC

KAMALA D. HARRIS

Attorney General of California

ROBERT W. BYRNE

Senior Assistant Attorney General

ANNADEL A. ALMENDRAS

Supervising Deputy Attorney General

GARY ALEXANDER, SBN 167671

M. ELAINE MECKENSTOCK, SBN 268861

Deputy Attorneys General

1515 Clay Street, 20th Floor

Oakland, CA 94612

Telephone: (510) 622-4450

Fax: (510) 622-2272

Email: [email protected]

Attorneys for Appellant Charlton Bonham,

Director of the California Department of

Fish and Wildlife, in his official capacity

Case: 13-17358, 11/16/2015, ID: 9756908, DktEntry: 46-1, of 26

TABLE OF CONTENTS

Page

i

INTRODUCTION ......................................................................................... 1

FACTUAL BACKGROUND ........................................................................ 3

LEGAL BACKGROUND ............................................................................. 4

REASONS FOR GRANTING THE PETITION........................................... 5

I. The Majority’s Decision Conflicts With The Supreme Court’s

Toomer Rule For Commercial Fishing Fees ....................................... 5

A. The Toomer Rule Authorizes Differential Fees To

Compensate The State While Precluding Over-

Compensation And The Exclusion Of Nonresidents ................ 5

B. In Conflict With The Toomer Rule, The Majority’s Rule

Prohibits Differential Fees And State Compensation,

Even Where Nonresidents Are Not Excluded .......................... 7

C. The Majority’s Reading Of The Phrase “Taxes Which

Only Residents Pay” Conflicts With Toomer And Other

Supreme Court Precedent ........................................................ 10

II. The Majority’s Decision Conflicts With Other Supreme Court

Common Calling Decisions And With A Core Principle Of

Federalism ......................................................................................... 13

A. Contrary To The Majority’s Holding, Inequality May Be

Justified At Step Two In Common Calling Cases .................. 13

B. Application Of A “Substantial Equality” Rule From Tax

Cases Here Conflicts With Supreme Court Precedent ............ 16

III. The Panel’s First-Step Analysis Also Conflicts With Decisions

Of The Supreme Court And This Court ............................................ 20

CONCLUSION ............................................................................................ 21


TABLE OF AUTHORITIES

Page

ii

CASES

Austin v. New Hampshire

420 U.S. 656 (1975)..................................................................... 16, 17, 18

Baldwin v. Fish & Game Commission of Montana

436 U.S. 371 (1978)................................................................................. 18

Carlson v. State

798 P.2d 1269 (Alaska 1990) .....................................................................5

Council of Ins. Agents & Brokers v. Molasky-Arman

522 F.3d 925 (9th Cir. 2008) ............................................................. 14, 20

Hicklin v. Orbeck

437 U.S. 518 (1978)..................................................................... 15, 18, 19

Int'l Org. of Masters, Mates & Pilots v. Andrews

831 F.2d 843 (9th Cir. 1987) ................................................................... 21

Lunding v. N.Y. Tax Appeals Tribunal

522 U.S. 287 (1998)............................................................................. 4, 18

Maryland v. Wynne

135 S. Ct. 1787 (2015) ....................................................................... 11, 16

McBurney v. Young

133 S. Ct. 1709, 1714 (2013) ............................................................ passim

Mullaney v. Anderson

342 U.S. 415 (1952)........................................................................... 6, 7, 8

Reeves, Inc. v. Stake

447 U.S. 429 (1980)........................................................................... 11, 16

Salorio v. Glaser

414 A.2d 943 (N.J. 1980) .................................................................... 5, 16



(continued)

Page

iii

Shaffer v. Carter

252 U.S. 37 (1920)................................................................................... 11

Toomer v. Witsell

334 U.S. 385 (1948).......................................................................... passim

Travelers’ Ins. Co. v. State

185 U.S. 364 (1902)................................................................................. 17

Travis v. Yale & Towne Mfg. Co.

252 U.S. 60 (1920)................................................................................... 17

United Bldg. & Const. Trades Council of Camden Cnty v. City

of Camden

465 U.S. 208 (1984).......................................................................... passim

Virginia v. Friedman

487 U.S. 59 (1988)............................................................................... 4, 20

STATUTES

Fish & Game Code

§ 7050(b) .....................................................................................................3

§ 7055(a) ................................................................................................ 1, 3

119 Stat. 289-90 (2005) (Pub. Law 109-13, May 11, 2005) ...........................1

OTHER AUTHORITIES

U.S. Dept. of Commerce, Bureau of the Census,

Consumer Income (1970) ...........................................................................9


1

INTRODUCTION

In a divided decision under the Privileges and Immunities Clause of

Article IV of the United States Constitution, this Court invalidated four

long-standing California statutes that set higher commercial fishing fees for

nonresidents than for residents. This decision may have implications well

beyond California because virtually all States with commercial fisheries

charge higher fees to nonresidents. And Congress has declared it to be “in

the public interest” that they continue to do so. 119 Stat. 289-90 (2005)

(Pub. Law 109-13, May 11, 2005).

California manages its commercial fisheries to assure that they continue

to provide “economic, recreational, ecological, cultural, and social benefits”

to the people of the State. Cal. Fish & Game Code § 7055(a). The primary

question presented here is whether California may recover a reasonable

share of its expenditures in furtherance of this objective from the

nonresidents who profit from those expenditures.

The Supreme Court has indicated that States may “charge non-residents

a differential” commercial fishing fee, where that fee “merely compensate[s]

the State” for its expenditures. Toomer v. Witsell, 334 U.S. 385, 398-99

(1948). California spends more than $14 million each year, from its own

funds, to manage its commercial fisheries. The nonresident differential fees


2

represented less than 3 percent of that amount (approximately $400,000),

although nonresidents comprise more than 10 percent of licensed

commercial fishers. This is precisely the sort of compensation contemplated

in Toomer.

Yet, the majority concluded that California’s differentials are

unconstitutional, interpreting Toomer to require “substantial equality” for

residents and nonresidents. Opinion at 12-13. This rule essentially

precludes California from collecting any nonresident differentials and, thus,

from obtaining any compensation for expenditures made on behalf of its

citizens and from its own funds. Id. at 18 (dissent). This interpretation

conflicts irreconcilably with Toomer.

Indeed, the Supreme Court has never applied a “substantial equality”

requirement in a case, like this one, that involves nonresidents’ opportunities

to pursue a common calling. In such cases, as in Toomer, the Court has

consistently indicated that inequality may be justified. It has also

specifically directed courts to consider the expenditure of a State’s own

funds a “crucial factor” in assessing the State’s justification. United Bldg. &

Const. Trades Council of Camden Cnty v. City of Camden, 465 U.S. 208,

221, 223 (1984).


3

The majority’s decision here conflicts with directly applicable Supreme

Court precedent. Rehearing or rehearing en banc is warranted to resolve

these conflicts and their significant implications for state resource

management decisions.

FACTUAL BACKGROUND

Having found that its “fisheries, and the resources upon which they

depend, are important to the people of the state,” California takes numerous

steps to protect its “marine living resources for the benefit of all citizens of

the state.” Cal. Fish & Game Code §§ 7055(a), 7050(b).

California’s Department of Fish and Wildlife, alone, spends

approximately $20 million each year managing the State’s commercial

fisheries.1 The State collects less than $6 million each year in commercial

fishing revenues, including all license fees. ER 4:650 at 39, 3:318 (Table 2).

Thus, California spends more than $14 million per year of its own funds on

its commercial fisheries. Opinion at 12.

Nonresidents constitute more than 10 percent of commercial fishers in

California. ER 4:646 at ¶ 13-15. This percentage has increased with the

differential fees in effect. Id.

1 See ER 4:576-77 at ¶ 21-23; 4:650-52 at ¶¶ 40-48; 4:706-09.


4

LEGAL BACKGROUND

The Privileges and Immunities Clause protects nonresidents from

unreasonable discrimination with respect to fundamental privileges.

McBurney v. Young, 133 S. Ct. 1709, 1714 (2013). Among those are “the

opportunity to pursue a common calling, the ability to own and transfer

property,” id. at 1715, and the right to equal property and income taxes,

Lunding v. N.Y. Tax Appeals Tribunal, 522 U.S. 287, 296 (1998). The

privilege at issue here is the opportunity to pursue the common calling of

commercial fishing. Opinion at 7.

Courts analyze Privileges and Immunities Clause claims in two steps.

First, they ask whether “the challenged restriction deprives nonresidents of a

protected privilege.” Virginia v. Friedman, 487 U.S. 59, 65 (1988). Second,

courts will invalidate the challenged restriction only if it “is not closely

related to the advancement of a substantial state interest.” Id.

Here, the panel held the first step was satisfied because “it is common

sense that commercial fishing license fees directly affect commercial

fishing.” Opinion at 10.

At the second step, the panel split. The majority invalidated

California’s fees because the differentials were not “substantially equal to


5

[the amount] an individual resident contributes,” through his or her taxes,

toward fishery management expenditures. Opinion at 13; see also id. at 12.

As the dissent noted, the majority adopted the Alaska Supreme Court’s

“per resident” or “per capita” interpretation of Toomer, which differs from

the New Jersey Supreme Court’s “fair share” interpretation. Opinion at 15-

18 (dissent); see also Carlson v. State, 798 P.2d 1269 (Alaska 1990); Salorio

v. Glaser, 414 A.2d 943 (N.J. 1980). The dissent would have adopted the

latter interpretation under which States may recover from nonresidents a fair

share of the state-fund expenditures from which the nonresidents benefit.

The majority’s second-step analysis is the primary focus of this

rehearing petition. But the panel’s first-step analysis also warrants

rehearing, as discussed in the final section below.

REASONS FOR GRANTING THE PETITION

I. THE MAJORITY’S DECISION CONFLICTS WITH THE SUPREME

COURT’S TOOMER RULE FOR COMMERCIAL FISHING FEES

A. The Toomer Rule Authorizes Differential Fees to

Compensate the State While Precluding Over-

Compensation and the Exclusion of Nonresidents

In 1948, in its first commercial fishing fee decision under the Privileges

and Immunities Clause, the Supreme Court considered a license fee that was

100 times higher for nonresidents. The first-step inquiry was satisfied


6

because the “virtually exclusionary” fee “plainly and frankly discriminate[d]

against non-residents.” Toomer, 334 U.S. at 396-97. At the second step, the

Court expressly recognized that certain State interests can justify differential

fees: “The State is not without power … to charge non-residents a

differential which would merely compensate the State” for “added

enforcement burden[s]” imposed by nonresidents or “any conservation

expenditures from taxes which only residents pay.” Id. at 398-99.

However, “[n]othing in the record indicate[d] … that the cost of

enforcing the laws against [nonresidents was] appreciably greater, or that

any substantial amount of the State’s general funds [was] devoted to shrimp

conservation.” Id. at 398. In any event, such expenditures “would not

necessarily” have justified the “total exclusion” of nonresidents from the

fishery. Id. Accordingly, the Court invalidated the fee.

The Court has applied its Toomer rule in only one other case. There,

the Court rejected the argument that a differential was justified by the

“higher cost of enforcing the license law against nonresident fishermen”

because the amount collected from nonresidents “may easily have exceeded”

the State’s entire enforcement budget. Mullaney v. Anderson, 342 U.S. 415,

417-18 (1952). In other words, the differential exceeded the mere

compensation allowed by the Toomer rule.


7

Toomer and Mullaney establish that a State may justify differential

fees, where the fees are below exclusionary levels, if the State can show

sufficient qualifying expenditures such that the differentials collected

amount to mere compensation. In contrast, as discussed below, the

majority’s rule precludes differentials even where the fees have no

exclusionary effect and where state-fund expenditures vastly exceed the

differentials collected.

B. In Conflict with the Toomer Rule, the Majority’s Rule

Prohibits Differential Fees and State Compensation, Even

Where Nonresidents Are Not Excluded

Although the Toomer rule expressly authorizes States “to charge non-

residents a differential,” the majority read that rule as requiring “substantial

equality.” Toomer, 334 U.S. at 399; Opinion at 13. Under this

interpretation, the only permissible differential fees are those that

approximate the contribution each resident makes, through general taxes, to

the State’s fishery management expenditures. Opinion at 12-13. This per-

resident-contribution rule conflicts directly with Toomer.

As the dissent correctly noted, under the majority’s rule, California

could collect less than $1 from each nonresident fisher because California’s

$14 million in state-fund expenditures would be divided by its population

(39 million) or its taxpayer base (15 million) to calculate the per-resident


8

contribution that defines the permissible differential. Opinion at 17-18

(dissent). Thus, the majority’s rule effectively precludes differentials in, and

compensation for, California. Indeed, even if California had shown $150

million in qualifying expenditures, the majority’s rule would limit the

differential to, at most, $10 per nonresident ($150 million divided by 15

million resident taxpayers).

Rather than permitting compensation for the State, the majority

attempts to equalize the relative contributions of individual residents and

nonresidents. Opinion at 13. But the Toomer Court never even alluded to

this comparison of individual contributions, let alone to the per-resident

calculation the majority interprets Toomer to require.

The relevant question in Toomer was whether “the State’s conservation

program for shrimp requires expenditure of funds beyond those collected in

license fees,” or, put another way, whether “any substantial amount of the

State’s general funds is devoted to shrimp conservation.” Toomer, 334 U.S.

at 398, 399. The focus is on the amount of state expenditures, not individual

contributions, because the rule prohibits over-compensation for the State.

See Mullaney, 342 U.S. at 417-18.

Notably, the Toomer rule also protects against the “total exclusion” of

nonresidents, even where a State could show that the nonresident


9

differentials amount to mere compensation: “[A]ssuming such were the

facts, they would not necessarily support a remedy so drastic as to be a near

equivalent of total exclusion.” Toomer, 334 U.S. at 398. This additional

limitation on the differential amount confirms that the Toomer rule is not a

per-resident contribution rule. Fees that place residents and nonresidents

“upon the same footing,” as the majority requires, could not create the

exclusion about which the Toomer Court was concerned. Contrary to the

majority’s interpretation, the Toomer rule is not an attempt to level the

playing field.

Indeed, given the Toomer Court’s first-step finding that the differential

was so high as to be “virtually exclusionary,” it seems highly unlikely that

the Court’s second-step inquiry asked whether such a differential produced

“substantial equality.” See Toomer, 334 U.S. at 396-97. In fact, the Court

was considering a $2,475 differential in 1948 when median incomes ranged

from $425 to $5,267.2 Put simply, the majority’s per-resident-contribution

rule could never conceivably have been satisfied in Toomer. The Toomer

2 U.S. Dept. of Commerce, Bureau of the Census, Consumer Income

(1970) at p. 82 (Table A-3), available at

http://www2.census.gov/prod2/popscan/p60-069.pdf, last visited October 24,

2015.


www2.census.gov/prod2/popscan/p60-069.pdf

10

Court’s failure to note this, even in passing, underscores that the Court did

not have a per-resident-contribution rule in mind.

In sum, neither the majority’s rule nor its analysis can be reconciled

with Toomer.

C. The Majority’s Reading of the Phrase “Taxes Which

Only Residents Pay” Conflicts with Toomer and Other

Supreme Court Precedent

The majority rests its per-resident-contribution rule on the use of the

phrase “taxes which only residents pay” to describe the State’s

“conservation expenditures.” Opinion at 12; Toomer, 334 U.S. at 399. But

that phrase is not a hidden instruction to divide conservation expenditures by

the number of residents or taxpayers in the State. Rather, that phrase simply

describes the qualifying expenditures, as do other, similar phrases in Toomer,

including “funds beyond those collected in license fees—funds to which

residents and not non-residents contribute” and “the State’s general funds.”

Toomer, 334 U.S. at 398.

These are all shorthand ways of indicating the same thing—that the

Court expected South Carolina to show expenditures of its own,

discretionary funds—“funds beyond those collected in license fees” or “the

State’s general funds”—and that the Court anticipated that such funds would

come primarily from residents. See id. at 398-99.


11

Notably, the Toomer Court was well aware that South Carolina’s

“general funds” would contain some taxes from nonresidents, including

taxes on income “from operations in South Carolina waters.” Id. at 392. In

fact, the Court had expressly provided, 28 years earlier, that States could tax

nonresident income earned within their borders. See Shaffer v. Carter, 252

U.S. 37, 52-53 (1920). And States frequently did so as early as 1911.

Maryland v. Wynne, 135 S. Ct. 1787, 1816 (2015) (Ginsburg, J., dissenting).

In referring to “taxes which only residents pay,” the Toomer Court was

simply acknowledging, albeit imprecisely, that “[s]tate taxes are ordinarily

paid by in-state businesses and consumers.” Wynne, 135 S. Ct. at 1798

(modification in original). The Court has repeatedly used the phrase “‘those

who fund the state treasury’” as an equally imprecise reference to residents

but not nonresidents. McBurney, 133 S. Ct. at 1720 (quoting Reeves, Inc. v.

Stake, 447 U.S. 429, 442 (1980)); see also id. at 1716 (affirming residency

requirement in part because “taxpayers foot the bill”). The Court did not

mean that residents are the only people “who fund the state treasury,” any

more than the Toomer Court meant that only South Carolina residents

contributed to the State’s general funds.

These shorthand phrases simply recognize that residents pay the lion’s

share of state taxes. Thus, the phrase “taxes which only residents pay” is


12

neither a hidden command to calculate a per-resident contribution nor an

indication that the State must separate out the small fraction of taxes paid by

nonresidents (including the perhaps inseparable amounts paid in sales taxes)

to apply the Toomer rule. Rather, this shorthand phrase refers to

expenditures from “funds beyond those collected in license fees,” funds the

State chooses to spend on its commercial fisheries rather than on other

programs, including programs that might benefit residents only. See Toomer,

334 U.S. at 398.

This understanding is consistent with the Court’s guidance that

expenditures of the State’s “own funds or funds it administers [are] perhaps

the crucial factor” at the Clause’s second step. Camden, 465 U.S. at 221.

That guidance does not distinguish between funds contributed by residents

and other funds. Rather, that guidance recognizes that state-fund

expenditures reflect the State’s exercise of its sovereign discretion, on behalf

of its citizens, to fund one program (e.g. commercial fishing) over another.

Accordingly, when that sovereign decision provides a commercial benefit to

nonresidents, the State may obtain fair compensation from those

nonresidents. The majority’s decision precludes that compensation, in

conflict with Toomer, and rehearing is warranted.


13

II. THE MAJORITY’S DECISION CONFLICTS WITH OTHER SUPREME

COURT COMMON CALLING DECISIONS AND WITH A CORE

PRINCIPLE OF FEDERALISM

A. Contrary to the Majority’s Holding, Inequality May Be

Justified at Step Two in Common Calling Cases

The majority’s second-step analysis also conflicts with the express

purpose and function of the second step as described and applied in cases

involving common calling opportunities. The second step exists to allow

States to justify inequality by showing “a ‘substantial reason’ for the

difference in treatment.” Camden, 465 U.S. at 222. The majority

acknowledged this, Opinion at 11, but nonetheless held that no differential

treatment is, in fact, allowed because the Clause requires “substantial

equality” even at the second step, id. at 12. See also id. at 13. Thus, the

majority rejected Defendant’s interpretation of the Toomer rule because it

“allows for inequality.” Id. at 12.

However, by the time courts reach the second step in a common calling

case, they have already found that the challenged restriction deprives

nonresidents of the privilege to pursue common calling opportunities “on

terms of substantial equality” with residents. Toomer, 334 U.S. at 396. For

example, this Court held that the first step was satisfied where “the ability of

[nonresident agents] to ply their trade … on substantially equal terms with


14

resident agents” was compromised. Council of Ins. Agents & Brokers v.

Molasky-Arman, 522 F.3d 925, 934 (9th Cir. 2008) (emphasis added). The

majority’s second-step question—whether the State’s treatment of

nonresidents is substantially equal—has already been asked and answered at

the first step. See, e.g., Toomer, 334 U.S. at 396-97.

Camden illustrates this well. That case involved an ordinance reserving

40 percent of public construction jobs for residents. Camden, 465 U.S. at

210. At the first step, the Court concluded that the ordinance “bias[ed] the

employment decisions of private contractors and subcontractors against out-

of-state residents.” Id. at 221-22. At the second step, the Court considered

Camden’s justification for the ordinance—that nonresidents working in

Camden “‘live off’ Camden without ‘living in’ Camden” and that the

“residency requirement [was] carefully tailored to alleviate this evil without

unreasonably harming nonresidents, who still have access to 60% of the

available positions.” Id. at 222. While the Court could not complete the

second step analysis in the absence of a factual record, its remand

instructions recognized the legitimacy of Camden’s interest in securing

benefits for its residents from its own public expenditures. Id. at 223.

If, as the majority held here, States are required to provide common

calling opportunities on terms of “substantial equality,” no remand would


15

have been necessary in Camden. The Court had already found the absence

of “substantial equality” at step one.

The Camden Court’s discussion of Hicklin v. Orbeck, 437 U.S. 518

(1978) further underscores the point. In that case, Alaska had argued that its

“resident hiring preference for all employment related to the development of

the State’s oil and gas resources” was justified by the State’s ownership of

those resources. Camden, 465 U.S. at 220-21. The Court rejected that

justification not because it allowed for inequality, but because the hiring

preference swept too wide, “attempt[ing] to force virtually all businesses that

benefit in some way from the economic ripple effect of Alaska’s decision to

develop its oil and gas resources to bias their employment practices in favor

of the State’s residents.” Id. at 223.

Notably, the degree of differential treatment here is far less extreme

than in Camden, where nonresidents were barred from 40 percent of the

relevant jobs. Thus, the majority’s rejection of the justification that

nonresident fishers “live off” California’s investment in its fisheries without

“living in” California conflicts starkly with the Court’s express recognition

of that justification as legitimate. See id. at 222-23; see also Salorio, 414

A.2d at 954 (holding Clause “does not entitle nonresident[s] to a ‘free

ride’”).


16

That recognition, like the Toomer rule, reflects a core principle

underlying our system of federalism—that “‘the essential and patently

unobjectionable purpose of state government [is] to serve the citizens of the

State.’” See McBurney, 133 S. Ct. at 1720 (quoting Reeves, 447 U.S. at

442). Thus, States may “‘limit[] benefits generated by … state program[s]

to those … whom the State was created to serve.’” Id. Indeed, States fund

all kinds of programs that are limited to residents only, even though

nonresidents pay some small fraction of total taxes collected. See Wynne,

135 S. Ct. at 1814 (Ginsburg, J., dissenting). The majority’s rejection of the

compensation authorized by Toomer conflicts with this core principle.

B. Application of a “Substantial Equality” Rule from Tax

Cases Here Conflicts with Supreme Court Precedent

As discussed above, the Supreme Court has never required “substantial

equality” at step two in a common calling case. The Court has, however,

applied “a rule of substantial equality of treatment for the citizens of the

taxing State and nonresident taxpayers” in a line of cases involving a

different privilege—the right to equal taxation of income and property.

Austin v. New Hampshire, 420 U.S. 656, 665 (1975). Under this rule,

income or property taxes that appear to be unequal can be upheld if, in light


17

of the full taxation scheme, the taxes are substantially equal. Id. at 664.

That rule is not the Toomer rule, and it is inapplicable here.

Notably, this substantial equality rule for taxes pre-dates Toomer, yet

went unmentioned by the Toomer Court. In 1902, the Court upheld a tax on

stock values that “appear[ed] to be a wrongful discrimination” against

nonresidents because, upon review of the full taxation scheme, the State had

“secured a reasonably, fair distribution of burdens” between residents and

nonresidents. Travelers’ Ins. Co. v. State, 185 U.S. 364, 365, 371 (1902).

And, in 1920, the Court invalidated an income tax exemption available only

to residents because it was not sufficiently “counterbalanced” by other tax

provisions. Travis v. Yale & Towne Mfg. Co., 252 U.S. 60, 81 (1920).

The Toomer Court never mentioned Travelers and cited Travis only for

basic principles of the Clause (not for a substantial equality analysis).

Toomer, 334 U.S. at 395-97. And when the Court announced the Toomer

rule authorizing higher license fees for nonresidents, it cited no cases at all.

Id. at 399. The Toomer rule is not a “substantial equality” rule.

Further, the Court has left no doubt that its “rule of substantial

equality” is applicable specifically to income and property taxes, calling it “a

rule of substantial equality of treatment for resident and nonresident

taxpayers.” Lunding, 522 U.S. at 298 (internal quotation omitted, emphasis


18

added); see also Austin, 420 U.S. at 665. The rule was developed and

applied in cases challenging “nonresident income tax provisions.” Lunding,

522 U.S. at 299 (emphasis added). The Court has never suggested what the

majority held here—that the Toomer rule and the tax rule of substantial

equality are one and the same.

In fact, the Court analyzes claims involving each distinct privilege in

accordance with precedent concerning that privilege. See McBurney, 133 S.

Ct. at 1715-18 (analyzing three asserted privileges in three separate sections

relying on privilege-specific cases); Lunding, 522 U.S. at 299. This case,

like Toomer, is a common calling case, involving limitations “on a State’s

power to bias employment opportunities in favor of its own residents.”

Hicklin, 437 U.S. at 525 (describing Toomer); see also McBurney, 133 S. Ct.

at 1715 (describing Toomer, Hicklin, and Camden as involving “the

privilege of pursuing a common calling”); Baldwin v. Fish & Game Comm’n

of Montana, 436 U.S. 371, 387 (1978) (referring to Toomer and Mullaney as

“commercial-livelihood case[s]”). Substantial equality is not required at

step two in such cases.

Put simply, the Court does not conflate limitations on the State’s power

to tax with limitations on “the State’s power to bias employment

opportunities in favor of its own residents” or on the State’s power to spend.


19

Hicklin, 437 U.S. at 525; Camden, 465 U.S. at 221. Rather, the Court

recognizes that each protected privilege implicates different interests for

both the State and the nonresidents and analyzes each accordingly.

In sum, the majority’s second-step analysis conflicts with Toomer and

all of the Court’s common calling cases and, in so doing, infringes on state

sovereignty. According to the Court, an ordinance reserving 40 percent of

common calling opportunities for residents could be justified, largely by the

fact that the opportunities rely on government expenditures; and a resident

hiring preference for positions directly involved in the exploitation of a

State’s natural resources could be justified by the State’s ownership of those

resources. Camden, 465 U.S. at 221-23. California’s differential fees are

justified, then, because they reserve no commercial fishing opportunities

exclusively for residents and affect only those common calling opportunities

directly resulting from commercialization of the State’s natural resources

and directly benefiting from state expenditures. “Substantial equality” is no

more required here than it was in Camden, Hicklin or Toomer. The

majority’s decision to the contrary has significant implications for California

and, potentially, for States across the country. Defendant respectfully

requests rehearing to address these serious issues.


20

III. THE PANEL’S FIRST-STEP ANALYSIS ALSO CONFLICTS WITH

DECISIONS OF THE SUPREME COURT AND THIS COURT

In common calling cases, courts have held that the first step is satisfied

where nonresidents are excluded, in whole or in part, from common calling

opportunities. E.g., Toomer, 334 U.S. at 397 (“virtually exclusionary” fees);

Camden, 465 U.S. at 221 (ordinance reserving 40 percent of positions for

residents). Yet, without citing a single case where nonresidents may freely

engage in their common calling, as they may here, the panel held that

“add[ing] an exclusion requirement to the first [step]” would “upset decades

of precedent.” Opinion at 8. It is true, as the panel noted, that Friedman

indicates that “total exclusion” is not required at the first step. Id. But that

does not mean the first step can be satisfied absent any exclusion. Indeed,

the presence of the word “total” conveys the opposite meaning.

Notably, the law invalidated in Friedman excluded some nonresidents

by requiring them to pass the bar exam (an exam some would fail).

Friedman, 487 U.S. at 61. Similarly, this Court has found the first step

satisfied where nonresidents are excluded from one key component of their

common calling. Molasky-Arman, 522 F.3d at 934. These partial exclusion

cases do not establish that the common calling privilege is infringed absent

any exclusion.


21

Indeed, this Court has required a first-step showing that nonresidents

“are prevented or discouraged” from pursuing a common calling, and the

Supreme Court recently confirmed a similar requirement. Int'l Org. of

Masters, Mates & Pilots v. Andrews, 831 F.2d 843, 846 (9th Cir. 1987);

McBurney, 133 S. Ct. at 1715. The panel rejected this first-step requirement

by concluding, erroneously, that McBurney is a second-step case. Opinion

at 9. McBurney held that the law did not “abridge [plaintiff’s] ability to

engage in a common calling” and faulted the plaintiff, not the State, for

failing to provide the requisite proof. See McBurney, 133 S. Ct. at 1715.

Those are first-step holdings.

CONCLUSION

For the foregoing reasons, Defendant respectfully requests rehearing or

rehearing en banc.

Dated: November 16, 2015

Respectfully submitted,

KAMALA D. HARRIS

Attorney General of California

ANNADEL A. ALMENDRAS

Supervising Deputy Attorney General

/S/ M. ELAINE MECKENSTOCK

M. ELAINE MECKENSTOCK

Deputy Attorney General

Attorneys for Appellant Charlton Bonham,

Director of the California Department of

Fish and Wildlife, in his official capacity


CERTIFICATE OF COMPLIANCE

PURSUANT TO CIRCUIT RULES 35-4 AND 40-1

FOR 13-17358

I certify that pursuant to Circuit Rule 40-1, the attached petition for panel

rehearing/petition for rehearing en banc is:

X Proportionately spaced, has a typeface of 14 points or more and contains

4,195 words (petitions and answers must not exceed 4,200 words).

November 16, 2015 /s/ M. Elaine Meckenstock

Dated M. Elaine Meckenstock

Deputy Attorney General


No. 13-17358

IN THE UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

KEVIN MARILLEY, et al.,

Plaintiffs-Appellees,

v.

CHARLTON BONHAM,

Defendant-Appellant.

On Appeal from the United States District Court

for the Northern District of California Hon. Magistrate Judge Donna M. Ryu

Case No. 4:11-cv-02418-DMR

PLAINTIFFS-APPELLEES’ RESPONSE TO PETITION FOR PANEL

REHEARING/REHEARING EN BANC

Stuart G. Gross (CSB No. 251019) [email protected] GROSS LAW The Embarcadero Pier 9, Suite 100 San Francisco, CA 94111 Telephone: (415) 671-4628

Todd R. Gregorian (CSB No. 236096)[email protected] FENWICK & WEST LLP 555 California Street, 12th Floor San Francisco, CA 94104 Telephone: (415) 875-2300

Attorneys for Plaintiffs-Appellees

Case: 13-17358, 12/07/2015, ID: 9783145, DktEntry: 48, Page 1 of 15

i

TABLE OF CONTENTS

Page

INTRODUCTION ..................................................................................................... 1

ARGUMENT ............................................................................................................. 3

I. THE PANEL’S FIRST-STEP ANALYSIS DOES NOT CONFLICT WITH PRECEDENT OR WARRANT REHEARING. ............. 4

II. THE PANEL’S SECOND-STEP ANALYSIS DOES NOT CONFLICT WITH PRECEDENT OR WARRANT REHEARING. ............. 6

CONCLUSION ........................................................................................................ 10


ii


CASES

Austin v. New Hampshire, 420 U.S. 656 (1975) .............................................................................................. 7

Blumenthal v. Crotty, 346 F.3d 84 (2d. Cir. 2003) .................................................................................. 4

Carlson v. Alaska, 798 P.2d 1269 (Alaska 1990) ........................................................................... 4, 8

Council of Ins. Agents & Brokers v. Molasky-Arman, 522 F.3d 925 (9th Cir. 2008) ............................................................................ 4, 5

Lunding v. N.Y. Tax Appeals Tribunal, 522 U.S. 287 (1998) .......................................................................................... 3, 7

McBurney v. Young, 133 S. Ct. 1709 (2013) .......................................................................................... 5

Mullaney v. Anderson, 342 U.S. 415 (1952) .............................................................................................. 4

Sup. Ct. of Va. v. Friedman, 487 U.S. 59 (1988) ........................................................................................ 4, 5, 7

Tangier Sound Waterman’s Ass’n v. Pruitt, 4 F.3d 264 (4th Cir. 1993) .......................................................................... 4, 9, 10

Toomer v. Witsell, 334 U.S. 385 (1948) .....................................................................................passim

United Bldg. & Constr. Trades Council v. City of Camden, 465 U.S. 208 (1984) .............................................................................................. 8

OTHER AUTHORITIES

Fed. R. App. P. 35 .................................................................................................. 3, 8

Fed. R. App. P. 40 ...................................................................................................... 3


1

INTRODUCTION

This case involved four commercial fishing licenses for which California

charged nonresidents two to three times more than it charged residents. The

panel, like the district court before it, determined that these fees violate the

Privileges and Immunities Clause of the Constitution. They discriminate against

nonresidents in the pursuit of a common calling, and California failed to show the

discrimination closely relates to achievement of a substantial state interest.

Defendant describes the panel decision as divided, however no member of

the panel endorsed Defendant’s view of the law. Defendant argued that because

California invests more in the fisheries than it collects from license fees, it may

seek reimbursement by charging nonresidents more. Further, it can charge

nonresidents any amount more, so long as it does not drive them from the market

or make a profit (collect more than its total investment in the fishery). Finally, it

need not even show that the “investment” the nonresident fees reimburse came

from residents to begin with—i.e., California can double-charge nonresidents,

making them repay the state for expenditures that they already contributed to

through other fees.

The panel rejected these arguments: although California has an interest in

ensuring nonresidents do not unfairly benefit from residents’ tax expenditures, here

Defendant failed to show a relationship between that objective and the thousands


2

of dollars in additional fees charged. Defendant fails to raise grounds for

rehearing:

• Every court to consider the issue has held that commercial fishing

falls within the purview of the Privileges and Immunities Clause. The

panel unanimously held the same here. Slip Op. at 10, 14. No

decision requires Plaintiffs to prove the nonresident license fees

prevented them from fishing, as Defendant argues. Pet. at 20-21.

• The panel decision does not conflict with Toomer v. Witsell, 334 U.S.

385 (1948). See Pet. at 5-12. Defendant selectively edits a quotation

from Toomer to create the supposed “Toomer Rule”—that a state may

charge any differential that merely compensates itself for

expenditures. See Pet. at 1. Instead, Toomer holds that a state may

“charge non-residents a differential which would merely compensate

the State for any added enforcement burden they may impose or for

any conservation expenditures from taxes which only residents pay.”

Id. at 399. The panel correctly held that Defendant did not make any

showing under this standard. Slip. Op. at 13.

• Defendant misdescribes the panel decision as holding that the

Privileges and Immunities Clause’s guarantee of substantial equality

between residents and nonresidents means a state may never charge


3

differential fees. Pet. at 13. It does not. It holds only that Defendant

failed to show the fee differentials challenged in this case closely

relate to achievement of a substantial state interest. Slip. Op. at 13.

The panel considered Defendant’s arguments and the authorities invoked in the

rehearing petition: Defendant’s petition merely reargues the appeal. Cf. Fed. R.

App. P. 40. The panel’s decision also faithfully follows Supreme Court and Ninth

Circuit precedent, creates no inter-circuit split, and does not address a question of

exceptional importance. See Fed. R. App. P. 35. Accordingly, there are no

grounds for either panel rehearing or rehearing en banc, and the Court should deny

the petition.

ARGUMENT

“[T]he Privileges and Immunities Clause bars ‘discrimination against

citizens of other States where there is no substantial reason for the discrimination

beyond the mere fact that they are citizens of other States.’” Lunding v. N.Y. Tax

Appeals Tribunal, 522 U.S. 287, 298 (1998) (quoting Toomer, 334 U.S. at 396).

Courts evaluate the permissibility of residency classifications under the Privileges

and Immunities Clause according to a two-step inquiry:

(1) The plaintiff must show the activity affected by the discrimination

implicates a privilege or immunity protected by the Clause; and


4

(2) Once the plaintiff makes such a showing, the State must prove that

discriminating against nonresidents in the challenged way is closely related

to the achievement of a substantial state interest.

See Sup. Ct. of Va. v. Friedman, 487 U.S. 59, 64-65 (1988); see also Council of

Ins. Agents & Brokers v. Molasky-Arman, 522 F.3d 925, 934 (9th Cir. 2008).

Defendant seeks rehearing of the panel’s determinations at both steps of this

inquiry.

I. THE PANEL’S FIRST-STEP ANALYSIS DOES NOT CONFLICT WITH PRECEDENT OR WARRANT REHEARING.

The panel unanimously held that the activity affected by the discrimination,

commercial fishing, implicates a privilege protected by the Clause. Slip Op. at 10,

14. Every other court that has considered the issue has held similarly. See, e.g.,

Mullaney v. Anderson, 342 U.S. 415, 417 (1952); Toomer, 334 U.S. at 403

(“commercial shrimping in the marginal sea, like other common callings, is within

the purview of the privileges and immunities clause”); Blumenthal v. Crotty, 346

F.3d 84, 96 (2d. Cir. 2003) (“the [][law] discriminates against nonresidents with

respect to the privileges and immunities New York accords to its own citizens to

engage in commercial lobstering”); Tangier Sound Waterman’s Ass’n v. Pruitt, 4

F.3d 264, 266 (4th Cir. 1993); Carlson v. Alaska, 798 P.2d 1269, 1274 (Alaska


5

1990) (“Commercial fishing is a sufficiently important activity to come within the

purview of the Privileges and Immunities Clause . . . .”).

Defendant contends that the first step requires Plaintiffs to prove

additionally that the challenged fees “excluded” them from commercial fishing in

California. Pet. at 20-21. The Supreme Court has specifically rejected such a

requirement. See Sup. Ct. of Va., 487 U.S. at 66. As the panel recognized,

Defendant’s exclusion requirement would upset decades of precedent. Slip. Op. at

8. It would also “undermine the purpose of the Clause, because permitting a State

to freely discriminate against non-residents up to the point they are driven out

would not ‘place the citizens of each State upon the same footing with citizens of

other States.’” Id., citing Lunding, 522 U.S. at 296.

As the panel opinion discusses at length, Defendant’s cited cases do not

require a plaintiff to prove exclusion. Slip Op. at 7-10. Instead, they make clear

that the Privileges and Immunities Clause generally prohibits “giving [one’s] own

citizens a competitive advantage in business or employment.” McBurney v. Young,

133 S. Ct. 1709, 1716 (2013); see also Molasky-Arman, 522 F.3d at 934 (holding

there could be “no doubt” that the insurance trade falls within the purview of the

Clause). The panel’s holding at the first step is correct and creates no conflict with

precedent, and therefore does not warrant rehearing.


6

II. THE PANEL’S SECOND-STEP ANALYSIS DOES NOT CONFLICT WITH PRECEDENT OR WARRANT REHEARING.

At the second step, the panel held that Defendant failed to show the fees

closely related to a substantial state interest. Slip Op. at 11-14. It held that a state

may “charge non-residents a differential which would merely compensate the

State . . . for any conservation expenditures from taxes which only residents pay.”

Id. at 11, quoting Toomer, 334 U.S. at 398-99. However, Defendant failed to show

the fees—which often amounted to thousands of dollars in additional expense for

nonresidents—bore a close relationship to this objective. Id. at 5, 13. Indeed,

Defendant made no attempt to show what portion of its investment in the fisheries

came from residents.1

Repeating his arguments before the panel, Defendant seeks rehearing of this

holding on two grounds. First, he argues that under Toomer, California may

charge any fee differential that merely compensates itself for expenditures. As

noted above, Toomer instead permits the state to compensate itself for expenditures

“from taxes which only residents pay.” 334 U.S. at 399. Defendant’s only

response is to argue that those words do not mean what they say. Pet. at 10-13.

1 The record discloses that California’s expenditures come primarily from the Fish and Game Preservation Fund. This fund consists of fees, landing taxes, and penalties paid by both residents and nonresidents. See SER at 1:55-61 at ¶¶ 148-178; see also ER at 1:174, 177, 181, 182-183.


7

That response makes no sense in the context of the Privileges and Immunities

inquiry, which requires that discrimination against nonresidents closely relate to

achievement of the state’s claimed interest. Friedman, 487 U.S. at 64-65. It also

means the state could double-charge nonresidents without scrutiny, making them

repay the state for expenditures that they already contributed to through other fees.

Second, Defendant argues that the panel misapplied the Clause’s

requirement that states allow residents and nonresidents to compete on terms of

substantial equality. Pet. at 13-19. Defendant argues that the Clause requires

substantial equality of treatment for nonresidents only in “tax” cases, and not

“common calling” cases. Id. at 16-19. As the panel noted, the Supreme Court

draws no such distinction between the cases and applies the same test in both.2

Slip Op. at 11 n.4.

Defendant contends that by requiring substantial equality of treatment, the

panel precludes any differential fees. Pet. at 13. Not so. The panel expressly

recognized that ensuring nonresidents do not unfairly benefit from resident tax

expenditures is a substantial state interest that may justify differential fees. Slip.

Op. at 11-12. It held only that Defendant failed to show the fee differentials

2 Indeed, many cases fall in both of Defendant’s proposed categories. See, e.g., Lunding, 522 U.S. at 302 (tax at issue implicated “the right of nonresidents to pursue their livelihood on terms of substantial equality with residents”); Austin v. New Hampshire, 420 U.S. 656, 659 (1975) (same).


8

challenged in this case closely relate to that interest. Id. at 13. United Bldg. &

Constr. Trades Council v. City of Camden, 465 U.S. 208 (1984) is not to the

contrary. It held that only that it could not determine from the record whether

Camden closely tailored its local hiring preference to a claimed interest in

nonresidents free-riding off public expenditures. Id. at 222-23.

Defendant also contends the panel’s ruling prohibits differential fees as a

practical matter, based on calculations using the entire California population. Pet.

at 7. That result does not indicate the panel decided incorrectly, given the

relatively modest expenditures at issue. More importantly, however, the panel did

not purport to hold that a state must prove its allocation of costs between residents

and nonresidents using this or any other particular calculation. Instead, it limited

its holding to the case before it, and preserved to states flexibility in demonstrating

substantially equal treatment of nonresidents. See Slip Op. 12-13 (requiring only

that state show individual nonresidents contribute an amount substantially equal to

residents across related fees and taxes); see also Carlson,798 P.2d at 1278.

Defendant did not contend that this case requires rehearing because it

presents a question of exceptional importance.3 See Fed. R. App. P. 35. However,

3 Defendant does state that Congress has declared differential fishing fees to be in the public interest. Pet. at 1. However, Congress cannot circumvent Privileges and Immunities Clause requirements. Further, its declaration does not specify that the public’s interest relates to commercial fishing, as opposed to recreational fishing, which does not implicate the Clause.


9

the discussion above shows why it does not. Defendant made no showing

regarding what portion of its expenditures come from taxes which only residents

pay. Defendant bore this burden on summary judgment and had the necessary

facts in its possession. See Slip Op. at 13. Because of this failure of proof, this

case does not present the issue of how a state must go about proving its nonresident

fee differential merely compensates for resident tax expenditures. It only presents

the issue of whether, as Defendant contended, the state may charge nonresidents

discriminatory fees so long as it does not profit off them in the aggregate or drive

them from the market. As the panel recognized, longstanding Supreme Court

precedent already resolves this issue: discriminatory fees cannot be justified on that

basis. See, e.g., Toomer, 334 U.S. at 396.

Finally, as an additional consideration that weighs against granting

rehearing, the position Defendant advances would create a circuit split if adopted.

In Tangier Sound, Virginia argued that it subsidized its fisheries and could seek to

recoup those subsidies directly from nonresidents through discriminatory fees. The

court held identically to the panel here:

The rationale of Toomer permits a state to make judgments resulting in discrimination against nonresidents where the state establishes an “advancement of a substantial state interest” as a reason for the disparate treatment, and . . . evenly or approximately evenly distributes the costs imposed on residents and nonresidents to support those programs benefiting both groups. Thus, such a higher tax or fee


10

may be imposed on the nonresident if the object of that higher tax or fee “is to place the burden so that it will bear as nearly as possible equally upon all [residents and nonresidents].

Id., 4 F.3d at 267 (quoting Travelers Ins. Co. v. Connecticut, 185 U.S. 364, 372

(1902)). It determined that Virginia had not shown an allocation of costs between

residents and nonresidents that placed the burden equally or approximately equally

upon them. Id.

Here, Defendant argued that it subsidizes the fishery using funds that it

“controls,” which includes funds contributed by nonresidents. As the panel found,

Defendant made no attempt to show the relative contributions of residents and

nonresidents towards the fisheries “subsidy.” Slip. Op. at 13. Any ruling that

allows the state to compensate itself for resident tax expenditures in absence of

proof of those expenditures would conflict with Tangier Sound.

CONCLUSION

For the foregoing reasons, Plaintiffs respectfully request that the Court deny

the petition for rehearing.

Dated: December 7, 2015 FENWICK & WEST LLP

By: /s/Todd R. Gregorian Todd R. Gregorian



CERTIFICATE OF COMPLIANCE

I certify, that, pursuant to Ninth Circuit Rule 40-1, the attached

Plaintiffs-Appellees’ Response to Petition for Panel Rehearing/Rehearing En

Banc, is proportionately spaced, has a type-face of 14 points or more, and

contains 2,221 words (based on the word processing system used to prepare

the brief).

Dated: December 7, 2015 FENWICK & WEST LLP By: /s/Todd R. Gregorian

Todd R. Gregorian



IN THE UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT

Case No. 13-17358

CERTIFICATE OF SERVICE

I hereby certify that I electronically filed the following:

PLAINTIFFS-APPELLEES’ RESPONSE TO PETITION FOR PANEL

REHEARING/REHEARING EN BANC with the Clerk of the Court for

the United States Court of Appeals for the Ninth Circuit by using the

appellate CM/ECF system on December 7, 2015.

I certify that all participants in the case are registered CM/ECF users

and that service will be accomplished by the appellate CM/ECF system.

Dated: December 7, 2015 FENWICK & WEST LLP

By: /s/Todd R. Gregorian Todd R. Gregorian



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